At present, consumers have the choice to invest their hard-earned money in an array of investments, ranging from bonds to stocks, from real estate, crypto, and commodities, and what may appear to be an excellent investment to a newbie investor, may turn out to be a theoretical choice. How do you select which is the most efficient vehicle for your money? What characterizes a good type of investment, and how multifamily real estate investment is the best investment to engage with. The three (3) main features that each real estate investor should pay close attention to are:
- Leverage
- Liquidity
- Control
Inevitably, there are tons of features, but these three (3) traits cut above the rest as superior investment from average features. Let us dive into the three (3) characteristics and how multifamily has it all:
- Leverage. This is coined as the rocket fuel to coming up with huge wealth. There are some investments where you can capitalize as minimal as $150k and control about a million-dollar asset. You can ask your financial advisor like www.apartmentqueen.com to avail this type of leverage. It is guaranteed that the next thing you will hear is a click on the other line of your phone going dead. You will reap all your benefits even though you may have only about 10-20% of capital earmarked for all the investment:
- Principal pay down payment
- Economies of Scale
- Tax Benefits
- Appreciation
- Cash Flow
Did you realize why a lender would need a minimum down payment to obtain a property? In simpler terms, the buyer is obtaining a revenue stream that makes all the expenses of the property and wastes excess cash flows. The bank feels protected and safe with real estate. Real estate is tagged as one of the very few assets that enjoy this huge opportunity.
This is an extra benefit with the present economic climate that everyone is experiencing. The government is making money like drunken sailors, and this upsurge in the money supply is more commonly known as inflation. Verily, inflation definitively leads to price increases and erosion in terms of the value in dollars. It also gives freedom for borrowers to pay lenders back with money that is practically less than it was originally borrowed. This benefits borrowers significantly.
The rationale behind it is that multifamily real estate allows real estate investors to take control of more assets with minimal release of capital. This will practically lead to a burst of wealth when such assets appreciate. You also have to know that leverage works in other entries as well. If you lose money in a specific investment, such losses will be amplified with leverage.
- Liquidity. At the onset, real estate weakens on this criteria. But if you possess the patience, real estate offers an extraordinary way to access liquidity from your investment. So, how do we knock into the equity of our property? The approach is more commonly known as cash-out refinancing. It is one of the major reasons why we have been able to enlarge our portfolio with minimal to no capital coming from our pocket.
A cash-0ut refinance is made when the bank shoulders to pay your old mortgage and issues a new restructured mortgage based on the present property value. Another big advantage is that the loan proceeds are tax-free. You are taking a new loan with a bigger balance and the lender must pay it back with corresponding interest through a period specified in the contract. So there is no income tax when you refinance your property. They say, “It is not what you make, it is what you keep.” It may take some time to access such liquidity, but the benefits that you will reap are simply worth the wait. As soon as you cash out your initial investment, you somehow play with your house money. You will have zero if you let your own money in the deal. To add, you can be able to cash out more than your primary investment on all of their cash-out refinance. The most benefit that one can give is that the borrowers still have control of cash-flowing assets that will be the ones to shoulder for the monthly amortization.
- Control. Multifamily gives the real estate investor the control in a lot of angles, like:
- Decreasing expenditures;
- Increasing rental pays
- Refinancing;
- Selling; and
- Coming up and executing the business plan
See, you have control over your asset performance, such that you are the decision-maker. Multifamily real estate offers an owner a deal that practically will eradicate single-family home investment. A good investment is a large complex with more tenants under a single roof, as compared to multiple single-family properties scattered. That will increase the expenditure. If the complex has a vacancy, there is a great chance that the rest of the lessees can still pay the mortgage. When you have more lessees, your downside risk is limited.
On the one hand, a vacancy in a single-family unit means no rent for that period. So, the owner has to shoulder the expenses. You can run your multifamily complex like a business and enhance up operations by getting the services of full-time employees. You will realize your true success when you do not do the dirty stuff and begin focusing on managing the asset and in the long run, purchasing more.
Another extraordinary advantage that is always there is the huge tax benefits. The government, on the one hand, realizes that there was no way they could be able to supply sufficient affordable housing. The answer was to give big incentives to real estate owners to take the wheel and get the job done. Depreciation is a huge tax benefit in real estate investing, especially when it is paired with a study in cost segregation.
Depreciation is a non-cash expense that gives owners the freedom to avail of the deduction on the income collected, ergo, decreasing your tax obligation. Don’t you like the idea that your asset is appreciating while you can avail depreciation for tax purposes?
The government also gives the owner the freedom to utilize cost segregation studies, whereby the owner specifies personal property assets that are paired and classified with real property assets and segregate out personal assets for purposes of tax reporting. It simply means that you are accelerating depreciation a lot of times and reclassifying them to a shorter period. You are writing off a bigger portion of your depreciation expense and getting more losses faster.
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Kaylee McMahon
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